Tuesday, March 20, 2018

Motions at Start of Trial Give Insights into Strategies for DOJ Challenge to the AT&T/Time Warner Merger

The proposed merger of AT&T and Time Warner was announced on October 22, 2016. Seventeen months later, the Department of Justice’s antitrust challenge to the AT&T/Time Warner merger is finally going to trial this week. The opening arguments are scheduled for Wednesday, March 21, while the first two days of the week are being devoted to motions in court before U.S. District Judge Richard Leon, who is presiding over the case. The trial is expected to last six to eight weeks.
These two days of motions, as well as the motions made by each party earlier this month, provide important insights into how each side plans to make its case. Most of the early motions being addressed by Judge Leon are on admissibility of evidence.
Both DOJ’s Complaint that initiated the case last November and its pre-trial brief earlier this month gave heavy emphasis to statements made by executives and employees of AT&T, Time Warner, or DirecTV (a subsidiary of AT&T) that the DOJ claims show that the merging parties recognize the potential for anticompetitive harm. AT&T objected to many of the documents DOJ planned to use as exhibits, claiming they did not identify the author or context, and therefore should be considered as unreliable hearsay or irrelevant. Judge Leon appears to have generally agreed with this objection, unless the author can be identified and can be available for cross-examination. Whether these documents are admissible may affect the testimony of expert witnesses the DOJ presents who relied on these documents in forming their views of the merger.
The DOJ also appears to be relying on testimony and documents from rival companies, so the parties are arguing before the court over whether and how to keep information from rival companies confidential. Relying on testimony from competitors in a vertical merger case has significant potential pitfalls for DOJ. The antitrust standards for reviewing mergers focus on harm to competition, which is not the same as harm to competitors. Competitors might object to the merger because then the merged company will harm them by being better able to serve its customers. In anticompetitive horizontal mergers, the injured parties will usually be the downstream customers or the upstream suppliers of the merging companies. Since they compete on different levels from the merging companies, it is usually fairly easy for a court to distinguish between harm to competition and harm to competitors.
In vertical mergers, however, distinguishing between harm to competition and harm to competitors can be much more difficult. Complaining firms are likely to be at the same level in the supply chain as at least one of the merging parties, so the harm alleged by the government could be harm to a competitor that actually benefits customers. Such witnesses and their documents must then be viewed with some skepticism by the court, because they may well be complaining about being harmed by having to face a stronger and more efficient competitor after the merger.
Judge Leon has previously ruled that AT&T and Time Warner cannot present that the DOJ had improper political motives in bringing the case. AT&T and Time Warner largely dropped this claim in their pre-trial brief. It appears that Judge Leon is not going to give much leeway in court to AT&T and Time Warner in arguing that this merger is being treated differently from other mergers or that DOJ had an improper motive for challenging the merger and instead is directing the focus of the trial on the economic impact of the merger.
Judge Leon had also previously denied a motion by DOJ to exclude evidence the merger parties plan to present that they are offering to agree for seven years to arbitration in any Turner Networks carriage disputes with cable systems and other programming distributors that compete with ATT’s DirecTV and U-Verse. The combined companies would also agree not to “black out” these channels while the dispute is before an arbitrator. This ruling could be important at trial. In its pre-trial brief, the DOJ indicates that it will rely on case studies to show the economic impact of programming that is removed from cable system when programming providers and distributors fail to reach agreements on prices. If, however, the final decision on prices in programming carriage dispute is made by an arbitrator and blackouts are prevented during the arbitration process, then much of the harm alleged by DOJ would not occur. Certainly the DOJ will argue that such arbitration is not sufficient, making this arbitration offer a contentious issue during the trial.
The AT&T/Time Warner merger has important implications for other vertical mergers. Last year the DOJ declined to challenge, or even seriously investigate, the vertical merger of Amazon and Whole Foods. Other currently proposed vertical mergers include health insurer Cigna trying to buy pharmacy benefits manager Express Scripts and CVS looking to acquire health insurer Aetna. Various advocacy groups are also calling on the DOJ to reconsider the 2011 merger of Comcast and NBC Universal, which raises very similar vertical antitrust issues as the DOJ is alleging for the AT&T/Time Warner merger.
For a substantive analysis of the merger and the context in which it should be reviewed, see my February 8, 2018 Perspectives from FSF Scholars entitled “The Proper Context for Assessing the AT&T/Time Warner Merger.”

Thursday, March 15, 2018

5G Will Be a Technological Leap Forward for Consumers

A March 2018 policy paper by Nokia highlights the benefits of 5G networks to consumers and describes 5G’s role as an enabler of the Internet of Things:
  • “5G will offer an expected peak data rate higher than 2 Gbit/s initially and ultimately as high as 10-20 Gbit/s compared to the 300 Mbit/s LTE can offer today, combined with virtually zero latency, meaning that the radio interface will not be the bottleneck even for the most challenging use cases.”
  • “5G will support applications and industries of the future such as innovative health care services, self-driving cars and the next generation of industry automation.
  • “5G supports the huge growth of machine-to-machine type communication, also called Internet of Things (IoT), through flexibility, low costs and low consumption of energy. At the same time, 5G will be reliable and quick enough for mission-critical wireless control and automation tasks such as self-driving cars.”
  • “5G will lower costs and the consumption of energy. Energy efficiency is an integral part of the design paradigm of 5G.”

The policy paper also includes spectrum management, universal service, taxation, and other recommendations for Congress, the FCC, and NTIA to consider in an effort to promote 5G deployment.

Wednesday, March 14, 2018

Satellite Broadband Services Will Enhance Competition and Reach New Consumers

When it comes to the next generation of broadband services, fiber-based gigabit networks and 5G-enabled fixed wireless networks have drawn much-deserved attention. But satellite broadband services and integrated satellite and terrestrial services are becoming potent new sources of competition to the benefit of both residential consumers and enterprise customers.

Advanced geostationary orbit and emerging non-geostationary orbit fixed-satellite broadband providers are fast approaching the ability to reach residential consumers nationwide with high speeds. Competing fixed-satellite broadband services are increasingly offering consumers and businesses access with 25 Mbps, 50 Mbps, and even 100 Mbps download speeds. Near-future satellite broadband technologies are anticipated to reach terabit-level speeds.  

According to the FCC’s 2018 Broadband Progress Report, at the end of 2016, about 92.3% of the U.S. population had access to fixed broadband Internet access services offering speeds of 25Mbps/3Mbps for uploads and downloads. Fixed broadband service coverage numbers rose to 95.6% of the population when satellite broadband services are included. Importantly, fixed-satellite broadband services have the potential to quickly close the broadband coverage gap almost entirely and to give consumers who already have access to broadband services new competitive choices.  

Since 2017, the FCC rightly has encouraged satellite broadband services, including by granting new market entrant applications and by streamlining satellite service rules. Going forward, the Commission should continue making expeditious approval of satellite-based broadband services a priority. The Commission should follow through with its ongoing effort to streamline rules. Also, the Commission should reduce processing delays and at all times seek to make suitable spectrum available in a timely fashion for new satellite technologies and services, for example, like Ligado’s proposed service to use satellite-terrestrial spectrum on an integrated basis to serve primarily industrial enterprises.

Emerging Competition from Geostationary Orbit Fixed-Satellite Broadband Services: HughesNet and ViaSat

The Satellite Industry Association’s 2017 report indicates that there were nearly two million residential subscribers to geostationary fixed satellite broadband services at the end of 2016. The FCC’s 2018 Broadband Progress Report called specific attention to geostationary fixed-satellite broadband services offered by Hughes Network Systems and ViaSat: “The 2017 launches of the high throughput Jupiter 2 and ViaSat 2 satellites by Hughes and ViaSat, respectively, could further increase 25 Mbps/3 Mbps satellite offerings in the future.”

HughesNet is currently the largest provider of residential fixed broadband service, with approximately 1 million subscribers in 2017. In March of 2017, HughesNet deployed its advanced EchoStar XIX satellite, thereby doubling the capacity of its prior satellite configuration. Hughes’ reply comment in the FCC’s broadband progress report proceeding stated the EchoStar XIX enables it “to deliver broadband-defined speeds of 25/3 Mbps for residential users and 55/5 Mbps for enterprise users across the continental United States.” Meanwhile, Hughes is planning an early 2021 launch of its EchoStar XXIV/JUPITER 3 ultra-high density satellite, which “will provide residential and commercial Internet and data services, including in-flight Internet and network backhaul for remote cellular towers.” It is reported that the Echostar XXIV/JUPITER 3 will have a total throughput of 500 gigabits per second.

At the end of 2017 ViaSat had about 577,000 residential subscribers to its broadband service, according to a quarterly earnings report. On February 2 of this year, ViaSat announced the availability of its fastest residential broadband service to date. Enabled by ViaSat-2, its latest generation satellite, the new satellite broadband service has advertised speed tiers reaching 25 Mbps, 50 Mbps, and 100 Mbps in download speeds. Via-Sat’s new satellite broadband service is available across the nation and offers unlimited data for all of its plans. A San Diego Union-Tribune story indicates that ViaSat intends to be competing with HughesNet and is also “positioning its service as a higher speed alternative to DSL offerings.” And ViaSat’s future plans include the launch of its ViaSat-3 satellite, which potentially will offer 1 terabit per second download speeds.

Emerging Competition from Non-Geostationary Fixed-Satellite Broadband Services: OneWeb, Space Norway, Telesat, and SpaceX

The FCC’s 2018 Broadband Progress Report also highlighted recent agency efforts to close the digital divide by promoting non-geostationary satellite orbit (NGSO) fixed-satellite services with purported terabit-level speed capabilities. In June 2017, for instance, the Commission granted market access to SoftBank-backed OneWeb for its NGSO system. The Commission also granted NGSO applications by Space Norway and Telesat in 2017.

According to the FCC’s OneWeb Order, OneWeb’s system is set to consist of “a constellation of 720 satellites evenly distributed in 18 near-polar orbital planes, at an approximate altitude of 1200 kilometers.” OneWeb intends to use its system of numerous low-orbit satellites “to provide high-speed, affordable broadband connectivity to anyone, anywhere” in the United States, with launches planned for 2018 and 2019. Reports indicate that OneWeb’s plans include “connecting every unconnected school” by the year 2022. OneWeb’s first satellite constellation is projected to reach speeds of seven terabits per second, with successive constellations reaching significantly higher speeds.

Meanwhile, Space Norway’s planned “Arctic Satellite Broadband Mission (ASBM) system consists of two satellites in one orbit,” which would provide fixed broadband service coverage to unserved and underserved residential customers in the Artic region of the United States. Additionally, Telesat was “permitted to access the U.S. market using a proposed constellation of 117 satellites,” and thereby “enhance competition among existing and future” fixed-satellite broadband services.

Furthermore, on February 14, FCC Chairman Ajit Pai proposed that the Commission grant the application of Elon Musk’s SpaceX “to provide broadband services using satellite technologies in the United States and on a global basis.” Reportedly, SpaceX would deliver fixed-satellite broadband services using “4,425 satellites in non-geostationary orbit traveling in a tightly choreographed ballet 700 miles above the surface of the Earth.”

The FCC Should Continue Promoting Satellite-Based Broadband Technologies

The FCC’s 2018 Broadband Progress Report indicates that “[a]s of year-end 2016… over 24 million Americans still lack fixed terrestrial broadband at speeds of 25 Mbps/3 Mbps.” Also, 30.7% of Americans in rural areas as well as 35.4% of Americans on Tribal lands lacked access to fixed terrestrial broadband with speeds of 25 Mbps/3 Mbps.” Fixed-satellite broadband services – including those briefly surveyed above – can provide an important solution for reaching unserved and underserved areas. Furthermore, fixed satellite broadband platforms can offer additional, competing choices to residential consumers and businesses in those areas already covered by wireline broadband networks and soon to be covered by 5G fixed wireless networks.

Moreover, advanced satellite-based broadband technologies are necessary to fully enable the Internet-of-Things. Satellite services will be essential for transmitting geo-location information to vehicles as well as for transmitting other data to myriad types of smart devices and equipment. Pending before the Commission, for example, is Ligado’s proposed service, which would use satellite capability in combination with a terrestrial network to deliver smart device communications. If approved, the service would primarily support transportation, energy, electric utility, and public safety industry sectors. Ligado’s proposal, which depends on the use of mid-band spectrum in the 1-2 GHz range, was filed at the Commission back in December 2015. And the public comment period concluded in August 2016. Unless and until the FCC resumes its review process and approves the proposal, valuable mid-range spectrum resources will continue to go unused and generate no economic or other public benefits.

In sum, satellite technologies are poised to become increasingly important competitors in the next-generation broadband services market and essential facilitators of the Internet of Things. Accordingly, the FCC should build on its recent track record of promoting fixed-satellite broadband services. Indeed, prompt approval of new services using satellite-based technologies should remain a top priority. Streamlining of satellite service-related rules and clearing spectrum for commercial usage by satellite services should also remain imperatives.

Tuesday, March 13, 2018

Judge Denies Motion by Department of Justice to Exclude Evidence AT&T and Time Warner Plan to Present in Merger Trial

The federal judge presiding over the Department of Justice’s challenge to the AT&T-Time Warner merger has denied the motion by the DOJ to exclude evidence the merger parties plan to present at trial. That evidence is an offer to agree for seven years to arbitration in any Turner Networks carriage disputes with cable systems and other programming distributors that compete with ATT’s DirecTV and U-Verse. The combined companies would also agree not to “black out” these channels while the dispute is before an arbitrator. This offer appears to be modeled after the behavioral relief that DOJ and the Federal Communications Commission imposed in their settlement of their antitrust challenge to the Comcast-NBC merger in 2011.
This ruling could be important at trial. In its pre-trial brief, the DOJ indicates that it will rely on case studies to show the economic impact of programming that is removed from cable system when programming providers and distributors fail to reach agreements on prices. DOJ intends to argue that AT&T’s power to withhold Time Warner programming will give it market power over competing programming distributors who know they will lose customers if they cannot deliver Time Warner programming. If, however, the final decision on prices in programming carriage dispute is made by an arbitrator and blackouts are prevented during the arbitration process, then much of the harm alleged by DOJ would not occur.
The trial briefs is set to begin Monday, March 19, 2018. For a substantive analysis of the merger and the context in which it should be reviewed, see my February 8, 2018 Perspectives from FSF Scholars entitled “The Proper Context for Assessing the AT&T/Time Warner Merger.” For my review and assessment of the arguments made by the DOJ and the merging parties in their pre-trial briefs filed last week, see my recent blogpost entitled Department of Justice Pre-Trial Brief Describes A Case Against AT&T/Time Warner Merger That Will Be Difficult to Win.”

Commissioner Carr’s Proposal Would Create At Least $1.56 Billion in 5G Investment

A new report by Accenture Strategy found that regulations imposed by the National Historic Preservation Act and the National Environmental Policy Act (NHPA/NEPA) cost 5G wireless providers nearly $36 million in 2017 and consumed 29% of all related deployment costs, on average. With small cell deployment expected to grow significantly in coming years, the report finds that wireless providers will incur $2.43 billion in NHPA/NEPA regulatory costs from 2018 to 2026. Therefore, if the costs of NHPA/NEPA regulations were cut by two-thirds, 5G wireless providers throughout the U.S. would have an additional $1.56 billion to invest in small cell deployment.
FCC Commissioner Brendan Carr recently announced a new proposal that would cut NHPA/NEPA regulatory costs by 80%. If adopted, 5G wireless providers would have even more cost savings to allocate towards additional small cell deployment.

Saturday, March 10, 2018

Department of Justice Pre-Trial Brief Describes A Case Against AT&T/Time Warner Merger That Will Be Difficult to Win

The Department of Justice and AT&T-Time Warner have released their pre-trial briefs regarding the DOJ’s antitrust challenge to the AT&T/Time Warner merger. The trial briefs lay out the cases each side expects to present at the upcoming trial, which is set to begin Monday, March 19, 2018. Put simply, for a vertical merger, the Department of Justice is seeking unprecedented relief in the modern antitrust era, and proving its case is likely to be very difficult.
The proposed merger is a vertical merger of Time Warner, a programming content provider that sold off its cable systems years ago, and AT&T, a programming distributor through its DirecTV, U-Verse, and Internet-based services. The last time the U.S. government went to court seeking structural changes to a vertical merger was in 1979, when the Federal Trade Commission lost its challenge to truck trailer manufacturer Fruehauf’s acquisition of a brake component supplier.
The DOJ is insisting that behavioral remedies would not be effective and structural relief is needed, which might mean blocking the merger entirely or requiring the parties to sell off DirecTV or the Time Warner channels that are central to the merger transaction. Since 1972, every vertical merger challenge by the federal government was either unsuccessful or was settled out of court, usually with behavioral restrictions rather than structural changes. Thus, the DOJ is facing the additional burden of not only having to prove that the proposed merger will lead to anticompetitive harm, but also that these anticompetitive concerns are sufficient to justify the first court-ordered structural relief in a vertical merger case since 1972.
I previously pointed out how the Complaint filed by the DOJ in November 2017 was light on details about how the DOJ planned to litigate the case, and heavy on conclusory claims about anticompetitive outcomes and quotes from mostly unidentified documents from the merging parties suggesting motive. I noted that the DOJ will have to provide actual market evidence of how the anticompetitive harm would occur.
In its pre-trial brief, the DOJ provides much more information about how it plans to litigate the case. The brief indicates that DOJ will rely on case studies to show the economic impact of programming that is removed from cable systems when programming providers and distributors fail to reach agreements on prices. DOJ intends to argue that AT&T’s power to withhold Time Warner programming will give it market power over competing programming distributors who know they will lose customers if they cannot deliver Time Warner programming.
DOJ’s basic theory is that AT&T will use its new leverage from the Time Warner programming to harm content providers who compete with AT&T’s programming distribution services. In short, DOJ alleges that AT&T after the merger will have an incentive to raise prices for Time Warner programming, knowing that some or most of the competing content providers will pay the higher prices. And if content providers don’t pay the higher prices for Time Warner programming, DOJ claims that AT&T will recapture some of its lost revenues when a portion of the customers from those non-paying content providers subscribe instead to DirecTV or U-Verse because they want the Time Warner programming badly enough to switch.
DOJ’s characterization of the possible anticompetitive harms may be plausible in theory, but it suffers from many shortcomings. First, it is possible to describe equally plausible theoretical ways in which the anticompetitive strategy described by the DOJ would harm the merged parties more than it would help them, which DOJ will have to disprove in order to make its case before the court. It seems unlikely that AT&T would spend over $100 billion (including assumed debt) for the Time Warner channels only to damage their value by limiting access to these channels in order to increase the market share of DirecTV and U-Verse.
Second, there are good reasons to believe that changes in the market, many of which have occurred since some of the case studies cited in the DOJ brief, make it much less likely that anticompetitive strategies that may have worked in the past would work today. The DOJ brief mocks these arguments as the “Star Wars’ defense” because the merging parties claim, “everything the government is telling the Court is stale and out of context–it is from a long time ago in a galaxy far, far away.” Nonetheless, consumers are becoming far more willing to cut the cord and look to Internet platforms for information and entertainment. By early 2017, Amazon Prime subscriptions climbed to 80 million and Netflix surpassed 50 million, and 64% of TV households subscribed to Amazon Prime, Hulu, or Netflix. And the 2014 dispute over DirecTV’s carriage of The Weather Channel (TWC), which ended after three months when DirecTV refused to pay TWC’s higher rate and TWC folded, illustrates how owners of content providers have less leverage than in the past.
Third, the DOJ brief specifically identifies the HBO channels as valuable Time Warner content that the combined company could use to place competing distribution services at a disadvantage. But those channels are already available in many different ways, including through the online SlingTV and Hulu services. The HBO Now app is currently pre-loaded on all Apple TV for users of iPhones and iPads, and similar apps can be uploaded to Android, Amazon Fire, and Kindle devices. If a competing cable service were to lose access to HBO, its customers likely could find it elsewhere, and at a similar price to what their cable service charged. Eliminating access to HBO through all of these distribution services after the merger would hardly go unnoticed by consumers.
Finally, the AT&T and Time Warner brief asserts certain economic efficiency benefits that will allow them to better compete in the broader content deliver market with the much larger Google and Facebook. The merging parties claim: “In total, AT&T projects merger synergies of more than $2.5 billion in annual synergies by 2020 and more than $25 billion in total synergies on a net present value basis.” DOJ will have the burden of showing that these efficiency benefits are less than the cost of any anticompetitive effect DOJ can demonstrate.
For a substantive analysis of the merger and the context in which it should be reviewed, see my February 8, 2018 Perspectives from FSF Scholars entitled “The Proper Context for Assessing the AT&T/Time Warner Merger.” Free State Foundation President Randy May and I also discussed the challenges faced by the DOJ in bringing this case shortly before the DOJ filed its challenge here.

IP Theft Commission Calls for New Policies to Combat IP Theft By Chinese Companies

The IP Theft Commission has issued a slate of policy recommendations in connection with the Office of the U.S. Trade Representative’s current investigation of China’s practices relating to intellectual property (IP) theft and forced technology transfer.
As noted in a prior blog post, at the prompting of an August 2017 memorandum issued by President Trump, U.S. Trade Representative Robert Lighthizer opened the investigation pursuant to Section 301 of the Trade Act of 1974.
Among the IP Theft Commission’s recommendations:
  • Use and expand the authority of the executive branch to deny access to the U.S. market and banking system to Chinese and other foreign companies that steal and benefit from stolen American IP.
  • Create new national policy centers that coordinate efforts across relevant agencies, including the Department of Commerce and the Department of Treasury, to monitor and protect American IP.
  • Establish multilateral policy dialogues with Japan, the European Union, Australia, South Korea, Singapore, and other states that share interests in protecting IP to strengthen policies to harmonize national, legal, and regulatory frameworks and to share information.

Friday, March 09, 2018

Thinking Things Through - Maintain That National Policy Line

In a piece titled, “Thinking Things Through – Maintain That Line,” published on February 27, 2018, I contended that, as a matter of fundamental principle, it is important that “[d]igital broadband services should not be regulated under the same public utility-like Title II regulatory regime established for analog narrowband telecommunications services and applied to them throughout the 20th Century.” I contended that the “line that prevents Internet service providers from being classified and regulated as common carriers in a public utility-like fashion should not be crossed.”

Here I want to think through – contend for if you will – another fundamental principle: Digital broadband services should not be subject to state regulation that is inconsistent with the decades-old national policy favoring light touch regulation of information services.

Of course, it is well-known by now that many states, either through the adoption of new laws or the promulgation of executive orders, are attempting to impose various “net neutrality” mandates on Internet service providers (ISPs) offering services to the general public and/or through procurement contracts to state agencies. In effect, these laws and executive orders, absent preemption by the FCC, would re-impose the very public utility-like regulation that the FCC repealed in its December 2017 Restoring Internet Freedom Order (RIF Order).

If Internet service providers are required to operate under a patchwork of regulation imposed by the various states – a patchwork of public utility-like regulation incompatible with the federal deregulatory policy – then it is likely investment in new broadband facilities will be deterred and innovation chilled with respect to the development of new services.

This is exactly what the FCC concluded in the early 1980s in its seminal Computer II decisions when it first drew what it called a “bright line” between the newly emerging online services – then called “enhanced services” but now “information services” without any material change in definition – and basic telecommunications services. There the Commission established the policy of non-regulation for information services as distinct from common carrier regulation of telecommunications services. Importantly for present purposes, the Commission declared that its deregulatory policy preempted inconsistent state regulation so that the online services could grow free from state economic regulation that would stifle their growth. The FCC’s preemptive authority was upheld by the D.C. Circuit in Computer & Communications Industry Ass’n v. FCC in 1982.

Likewise, the FCC’s preemptive authority regarding state regulation incompatible with federal policy was affirmed by the Court of Appeals for the Ninth Circuit upon review of the agency’s late 1980s Computer III proceedings. The FCC had relaxed some of the requirements applicable to the Bell Companies provision of information services – moving from a strict structural separation regime to one employing nonstructural safeguards – and preempted state regulations that would have imposed more stringent mandates. Significantly, in California v. FCC (1994), the court declared: “The FCC has presented adequate record support for its conclusion that because of economic and operational factors, enhanced service providers would separate their facilities for service that are offered both interstate and intrastate, thereby essentially negating the FCC’s goal of allowing integrated provision of both enhanced and basic services.”

With this backdrop in mind, it should not be surprising – nor is it insignificant – that when Congress enacted the Telecommunications Act in 1996 it declared it to be federal policy “to preserve the vibrant and free market that presently exists for Internet and other interactive computer services” and further that information services should remain “unfettered by Federal or state regulation.’ 47 U.S.C. Section 230. In essence, Congress stated clearly that information services should continue to be subject to the deregulatory policy established in the early 1980s in Computer II and that this is a matter of national policy.

Of course, there have been many, many more pronouncements along the way to the same effect, by both the FCC and the courts. So, the FCC’s declaration in the Restoring Internet Freedom Order – like Congress’s declaration in the 1996 Telecommunications Act – should in no way be surprising. Indeed, the surprise would have been had there been no such declaration.

Here is what the FCC stated in the RIF Order:

Federal courts have uniformly held that an affirmative federal policy of deregulation is entitled to the same preemptive effective as a policy of regulation. In addition, allowing state or local regulation of Internet access service could impair the provision of such service by requiring each ISP to comply with a patchwork of separate and potentially conflicting requirements across all of the jurisdictions in which it operates.

The FCC went on to explain that it is “well-settled that Internet access service is a jurisdictionally interstate service because ‘a substantial portion of Internet traffic involves accessing interstate and foreign websites.’” And then, once again significantly: “Because both interstate and intrastate communications can travel over the same Internet connection (and indeed may do so in response to a single query from a consumer), it is impossible or impracticable for ISPs to distinguish between intrastate and interstate communications over the Internet or to apply different rules in each circumstance.” In this situation, state actions that have the effect of regulating and burdening an inherently interstate service are impermissible under the Commerce Clause.

It should be crystal clear from the foregoing that, dating back to the landmark Computer II decisions, there is a long history supporting the Commission’s declared intent to preempt inconsistent state public utility-like economic regulation that conflicts with the national policy that Internet providers should not be subject to a patchwork of conflicting state regulation, whether in the form of laws, executive orders, or other regulatory impositions.

I should reiterate once again, as I did in  “Thinking Things Through – Maintain That Line,” that the exercise of the Commission’s preemptive authority does not leave consumers or competitors unprotected or without recourse with regard to claims of alleged abusive ISPs practices. Not only will they have recourse to the Federal Trade Commission, with its consumer protection and competition authority, and the Department of Justice, with its antitrust authority, but they will have recourse as well to state laws and regulations, including consumer protection laws, of general jurisdiction. As the FCC stated in 2004 in the Vonage Preemption Order, the federal deregulatory policy regarding information services “refers primarily to economic public utility-type regulation, as opposed to generally applicable commercial consumer protection statutes, or similarly generally applicable state laws.”

So, in sum, just as one fundamental principle requires maintaining the deregulatory line that prevents today’s Internet service providers from being regulated like public utilities, another, correlative fundamental principle requires that, in order for Internet services to continue to thrive and to respond to consumer demands in a fast-changing marketplace, the FCC’s deregulatory policy must be applied on a national basis.

It should be evident that these two long-standing principles – first articulated almost four decades ago – have stood the test of time.